…WHILE IMF, WORLD BANK WAIT PATIENTLY.

Delays in privatization and other reforms have not yet jeopardized IMF and World Bank loans to Azerbaijan. The IMF approved US$130 million in loans in January and is now discussing programs worth an additional US$200 million. The World Bank is also expected to provide loans of up to US$200 million in the next three years. Baku’s good relations with the international financial institutions, despite the country’s delays in its reform, stem in part from the fact that Azerbaijan is perceived as an IMF success story. Tight monetary and fiscal policies turned 412 percent inflation in 1995 into 0.8 percent deflation in 1998. Prices in September 1999 were actually 9.1 percent lower than they were in September 1998. Despite the Russian crisis, GDP growth in Azerbaijan accelerated to 10.0 percent last year, and–thanks to continued strong foreign investment in the oil sector–GDP had grown by 6.9 percent during the first three quarters of 1999.

This GDP growth is likely to accelerate faster in the fourth quarter and early 2000, as falling prices are allowing the Azerbaijan National Bank (ANB) to loosen monetary and credit policies. The ANB in November dropped its key interest rate from 14 to 10 percent, and lowered hard currency reserve requirements for commercial banks from 12 to 10 percent. The ANB also doubled to 50 percent the amount of reserves banks can spend on securities.

The expansionary impact of looser money and credit policies could be lessened, however, by Azerbaijan’s largely unreformed financial system. The long overdue sale of a 45-percent stake in the International Bank (Azerbaijan’s largest commercial bank) has not yet come to pass, and privatization programs for three other state banks are still under preparation. Important tax reform legislation promoted by the IMF and World Bank has also stalled this year, though recent government statements claim that this legislation will be passed by the end of 1999. While many economic indicators look strong in Azerbaijan, the slow pace of reform could mean eventual delays in financing from international financial institutions.

The Monitor is a publication of the Jamestown Foundation. It is researched and written under the direction of senior analysts Jonas Bernstein, Vladimir Socor, Stephen Foye, and analysts Ilya Malyakin, Oleg Varfolomeyev and Ilias Bogatyrev. If you have any questions regarding the content of the Monitor, please contact the foundation. If you would like information on subscribing to the Monitor, or have any comments, suggestions or questions, please contact us by e-mail at pubs@jamestown.org, by fax at 301-562-8021, or by postal mail at The Jamestown Foundation, 4516 43rd Street NW, Washington DC 20016. Unauthorized reproduction or redistribution of the Monitor is strictly prohibited by law. Copyright (c) 1983-2002 The Jamestown Foundation Site Maintenance by Johnny Flash Productions